The iTraxx SovX Western Europe index, which represents an unweighted average of the credit default swap (CDS) spreads of 15 sovereign issuers, has traded at a record high of above 90 basis points, according to data provider Markit, which calculates the index.
A major contributor to the index’s rise to record levels was the sharp increase in the cost of default insurance on Greek sovereign debt, with the country’s CDS trading at above 400 basis points for the first time.
However, in recent days the cost of default protection has also risen sharply in Portugal, Spain and Italy.
The evolution of the CDS spreads of the iTraxx SovX Western Europe index’s constituent members since its launch on 22 September is shown in the first chart below. The second chart plots the CDS levels of the index’s five riskiest members (currently Greece, Portugal, Ireland, Spain and Italy, in that order).
There has been speculation all week that Greece could be offered financial support by other eurozone members or by the International Monetary Fund, in exchange for cutting down on public sector expenditure.
However, speaking earlier today on business channel CNBC, Christine Lagarde, the French finance minister, said that eurozone member states could not rely on others to rescue them.
“Any single member state – France, Germany, Greece – is not alone. We’re jointly accountable to each other. [The eurozone] is a monetary zone which holds us together. There’s no way out. There’s no bail-out system and we have to deliver on the commitments that we made,” she said.
Investors are piling into a closed-end fund with a convenient ticker on the way to ruin.
Why currency-hedged Japan ETFs are about to get big cap gains distributions.
The biggest hurdles ETF advisors face aren’t financial, they’re emotional.
Here’s how exchange-traded funds trade and what kind of orders are used.